SocGen: The Cause of Monday’s Sell-Off?

Was a single 30-year old French equity-derivatives trader directly responsible for the emergency 75bp rate cut that Ben Bernanke announced on Tuesday morning? It’s entirely possible.

The fraud at Societe Generale was uncovered over the weekend, at which point the bank got to work on Monday morning unwinding an absolutely massive long position in equity futures. It’s hard to prove causality, but it might well have been the case that the unwind was the trigger for the huge global stock-market sell-off on Monday, which in turn undoubtedly caused the Fed rate cut on Tuesday.

Here in Davos, French prime minister Francois Fillon is in denial, saying that “it has nothing to do with the situation on the financial markets”. Dude – it was an equity futures position. If that has nothing to do with financial markets, what does?